Tiger Airways CEO discusses 'recession boom'

Updated
June 18, 2009 02:14:00

British Airways has asked its 40,000 staff to work for free, for up to a month, to help the airline through the economic crisis. It is a different story for low cost carriers like Tiger Airways. Tiger Airways Singapore-based group CEO is Tony Davis and he joins Lateline Business to discuss the company's future.

ALI MOORE, PRESENTER: These are tough times in the airline industry and it seems some are feeling the pain more than others. British Airways has asked its 40,000 staff to work for free for up to a month, while both Qantas and Virgin Blue are cutting capacity and routes to try to get through the economic slump. But Australia's newest domestic carrier, the low cost Tiger Airways, appears to be enjoying something of a recession boom. Tiger, a joint venture between Singapore Airlines, Ryan Air and a private investor, say that while it's still in start-up mode, its business is growing rapidly. And with six planes based in Australia and a further 10 in Singapore, the airline is bringing forward orders for more at a time when many other airlines are delaying new purchases. Tiger Airways Singapore-based group CEO is Tony Davis. He's currently visiting Australia and joined me from our Melbourne studios earlier this evening.

Tony Davis, welcome to Lateline Business.

TONY DAVIS, CEO, TIGER AIRWAYS: Thanks, Ali. Good to be here.

ALI MOORE: We've just been hearing about British Airways asking its staff to work for free for up to a month. The airline says it's a matter of survival. Do you think this sort of thing could catch on - others in the industry may follow suit?

TONY DAVIS: Well I think certainly some of the full service airlines around the world may have to look at those kind of extreme measures. But in the low cost sector where Tiger operates, we're actually seeing a bit of a boom. We're seeing that customers are trading down. They're looking for bargains. They're looking to save money wherever they can. So, actually we're seeing very, very high load factors on our planes and we're actually looking to grow our business. So, we're actually looking to recruit pilots and cabin crew here in Australia and in Asia and we actually see the misfortunes of people like British Airways as playing to our advantage.

ALI MOORE: Well, let's look at that advantage that you say that you have. Two months ago, off the back of your fourth quarter result, you were confident enough to say that you were bucking the trend, and back then you reported a 7.6 per cent increase in passenger traffic and gross revenue up 25 per cent year on year. Where are those numbers now?

TONY DAVIS: Well, again, we're seeing very strong demand. I think what has happened is there's been a real change in the airline industry. If you look back 12 months ago, we had record high oil prices, we had very expensive aircraft, we had a shortage of pilots around the world because of high demand. And things are completely turned on their head now. What we're seeing is that consumers are trading down, as I said, to low cost airlines like Tiger. Airports are looking for the growth in their businesses, so they're looking to people like us to fill the gap that's being vacated by full service airlines who are grounding aircraft, making people redundant and so on. So, I think we're actually seeing, if you like, the perfect storm from a low cost airline's perspective.

ALI MOORE: So can you quantify that for me in terms of what it's meant since the end of the March quarter?

TONY DAVIS: Well, I think you know - well, I've said previously that we're very careful about the numbers we release. We're very cognisant of the fact that we're in a competitive marketplace. We're facing very fierce competitors, both here in Australia domestically and overseas. So we don't lay out our numbers in any great detail ahead of time. Because if you do that, you tell your competitors when they should try and attack you and which routes are performing well for you.

ALI MOORE: I know you don't want to telegraph your punches, so to speak, but that number, gross revenue up 25 per cent for the year, what does that mean in dollar terms?

TONY DAVIS: Well, again, we've never split our business here in Australia because we don't want to go into too much detail.

ALI MOORE: OK, I'll accept that. Can I ask you the generic question then: you're still not making money in this market, though, are you?

TONY DAVIS: No, and I don't think we ever said we would after a year of operations. If you look at low cost airlines historically, there's always a ramp-up phase when you grow your business and you establish the business. We're in a volume business. We've just got six aircraft here in Australia, but we are growing. And I think the difference between our model and other airlines right now is we're growing our business. We're recruiting pilots, we're opening new bases and we'll continue to do that. As we add more volume into our business, our costs go down further, we can make money on our business model, so ...

ALI MOORE: How long do you think that will be, though? Because as you said to me last time we spoke on this program about 18 months ago just before your first flight, you are here to make money, and if my understanding is correct, your parent was profitable after around two years of operation. Is that about your timeframe?

TONY DAVIS: Well it was actually three years of operation that Tiger turned in its first profit. And I think if you look over history, it takes two or three years of growth before you start getting the economies of scale for your business. What can I can tell you is: we're performing ahead of where we thought we'd be; we're seeing oil prices significantly lower than they were this time last year, and most importantly, we're seeing a lot of new customers coming to our flights. Our flights are very full. So, that's given us a lot of confidence to continue growing our business. We start Sydney services just next month. And again, when we spoke 18 months ago, we were saying, you know, "If you don't fly to Sydney, how are you gonna be relevant in the Australian market?" We start those Sydney services in July. So, look, this is a marathon for Tiger.

ALI MOORE: So given the momentum that you've got now and that you're obviously confident is going to continue, would it be fair to say that around - you're about halfway through your start-up phase; in another 18 months, your major shareholders would expect you to be profitable?

TONY DAVIS: Well, clearly, I have a business plan with my shareholders and they're happy with it and they're allowing me to continue to grow my business. So, you know, I don't like laying out business plans on TV for Alan Joyce and Brett Godfrey to pick over. What I can say to you is we're very, very happy with the response that we've had here in Australia. We've set up two bases already, and there's more routes, more opportunities, more growth to come.

ALI MOORE: Despite the picture that you paint, you were voted worst domestic airline in Australia for customer service by 'Choice' magazine, and there was, certainly in the beginning, a litany of complaints about customer relations. Did you get that wrong?

TONY DAVIS: We have to put that into context in terms of the survey. We actually came out top for value for money and that's a pretty good result when you've only been operating for a couple of months. And if you look at the base of people that actually commented on Tiger, I think it was less than 100 people, because as you say, we'd only just started flying.

ALI MOORE: So you're saying you didn't have a problem with customer service?

TONY DAVIS: No, I think what we're saying is there's an education process. All of us would like to buy a Rolls Royce and pay the price of a Holden. The reality is that we offer a different product to the other airlines. We do do things differently. We do ask people to turn up at the airport a bit earlier because that means we can operate with lower costs, those lower costs means lower fares.

ALI MOORE: But at the same time, haven't you hired a whole new customer service team to be based in Melbourne, rather than have all customer relations out of Singapore?

TONY DAVIS: Yeah, and we think that's an appropriate thing to do as we've grown the business.

ALI MOORE: Is that not an acknowledgement of perhaps something that you could've done at the beginning, or is it just a natural phase of your growth?

TONY DAVIS: I would say it's a combination of both. I think clearly you can operate a better service if you have that resource locally. I think there were things that get lost in translation between here and Singapore. I think the fact that when we set the business up the Australian dollar was at a different level than it is today and it was a couple of months ago. And so bringing services into Australia, whether they be engineering services, which we've done, customer relations, which we've done. You know, all of those things make sense from a big perspective and if that means that we can offer our consumers an even better product, that's all to the good.

ALI MOORE: Do you still hope to fly international services from Australia, and if you do, how serious are you about getting a local investment partner given that you're foreign-owned and that would mean under the law you're banned from flying internationally?

TONY DAVIS: I think, you know, there's a whole debate we could have around the legitimacy of the foreign ownership rules for airlines around the world.

ALI MOORE: Sure, but given these rules are not going to change, how do you realise that ambition, if it still is an ambition?

TONY DAVIS: Well, I think we do have that ambition, partly because our customers say to us, well, we offer really good fares domestically between Melbourne and Sydney. "Why can't I fly you to Indonesia or Malaysia or Singapore?" So, I think there is a customer demand. I think customers want those low airfares. The rules, as you say, are unlikely to change in the near future and certainly one of the things we could consider is bringing in an Australian investor who would give us effectively Australian nationality. So those are things that we're considering.

ALI MOORE: You'd have to sell more than half the business, though, wouldn't you?

TONY DAVIS: We'd have to sell half of our Australian businesses. We have a business in Singapore, we have a business here in Australia.

ALI MOORE: Are you talking to anyone?

TONY DAVIS: Well, certainly since we've said that we're interested in looking at that as a concept, a lot of people in Australia have put their hands up and said, "I'd be pretty interested if you want an investor." So, I think there is interest, there's interest on our part. We're not rushing to any conclusion. We've got lots still to do domestically, but clearly if we could take the business international, that would increase the scope of the business, it would give our employees more opportunities and it would mean that we would be a bigger airline. So, it's certainly something that we would consider.